Despite the bright prospects for solar energy in the long term, the erratic financial performance of solar companies is a major concern for investors. Hundreds of solar companies in the United States have gone bankrupt over the past decade, primarily due to intense competition on the price front.
But as always, there are companies that have shown exceptional growth. Let’s look at two such actions.
Main Renewable Energy Stocks
Solar companies form an important part of the universe of investable renewable energy companies. However, not all solar companies are the same. Some manufacture panels, some manufacture specialized components such as inverters or trackers, and others are only involved in solar installations.
Yet among the major solar companies, two players — Enphase Energy (ENPH 3.68%) and SolarEdge Technologies (SEDG 2.88%) — have always generated better margins than others.
The chart above shows quarterly gross profit margins for the top eight solar stocks. Enphase Energy generated a gross margin of 40.1% in the first quarter of 2022. Enphase Energy’s gross margins have been the highest among major solar stocks for the past three years. SolarEdge generated a gross margin of approximately 29% in the fourth quarter of 2021.
Both companies were able to translate high gross margins into net profits.
Enphase Energy generated a strong margin of 11.7% in the first quarter of 2022. SolarEdge’s margin for the fourth quarter was 7.4%. In comparison, the margins for Network technologies and sunrun are negative, while those of Canadian Solar and JinkoSolar are very thin.
Factors driving high margins
The performance of Enphase Energy and SolarEdge is impressive, given that solar companies have long struggled to compete on price with low-cost Asian manufacturers. The two companies compete in the solar inverter market as well as the storage battery market. They also face competition from traditional inverter manufacturers, including SMA Solar Technology, ABBHuawei Technologies, Fronius International GmbH and several Chinese inverter manufacturers.
The main factors that differentiate Enphase Energy and SolarEdge from other players are the technologies behind their products. Enphase Energy’s microinverters and SolarEdge inverters with optimizers not only offer significant advantages over other inverter options available, but are also very cost competitive.
Quality products help Enphase and SolarEdge grow sales while achieving healthy margins. Differentiated offerings with superior technology help these two companies stand out from the competition by making their stocks attractive.